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interview: james lilley
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Lilley was the U.S. ambassador to China from 1989 to 1991. He also served the CIA in China from 1975 to 1978. More recently, from 1991 to 1993, he was assistant secretary of defense for international affairs. In this interview, Lilley is critical of the FBI's counterintelligence program and its failure to successfully prosecute espionage cases. He also questions whether the Katrina Leung case has any serious national security repercussions. "The idea that she was giving information that was critical to the Chinese government ... and that she was influencing U.S. government policy by what she reported, I don't think that's true," he tells FRONTLINE. This interview was conducted on June 4, 2003.

How concerned should we be about the Chinese coming after our nuclear secrets?

Well, I think there's nothing new about it. They have been doing this since the founding of the People's Republic, and they've been trying to get our nuclear missile secrets. Perhaps the effort has become more sophisticated and more intensified. But we're very familiar with this. They brought back the famous missile rocket scientist, Tsen Hsue Shen, in 1955, and he was accused of espionage. He took a lot of information back with him on our long-range missiles. They've been trying to do this through the years.

Thats a very tortuous, long process to nail one of these guys,.. and, the Leung case is just a travesty of what an operation is supposed to be all about.

But again, I think it's picked up recently, because they're on this great technology acquisition drive. What they can't get through reading open publications -- where they get probably 80 percent of their information -- they have to work [to get] the other 20 percent through other means.

How do they do it? How is their espionage different than, let's say, the Russians or the East Germans were?

It's different. It has the same objectives because they all go back to Sun Tzu in one form or another, or the fifth century B.C., who had the five kinds of spies. He wrote the book on spying. The Chinese have done espionage, spying, and intelligence work very well since the beginning. It's all through the romance of the Three Kingdoms. It's been a central part of their work.

They use different techniques. You don't find the case officer in a trench coat on the corner making a pass with an agent or laying down a dead drop, necessarily. What you find is the massive collection technique, the vacuum cleaner. Somebody once said -- I think this is in Nick [Eftimiades]'s book -- "If the Russians want to get certain sand from a beach that's special, they'll have a submarine come in at night. They'll put a crew infiltration. They'll get a bucket full of sand, and they'll take it back to the submarine, and leave." The Chinese will have 500 people having picnics on the beach, each picking up the sand in a small can, and bringing it back.

It's a different technique. They rely much more on contacts, persuasion. Only a small percentage is for actually clandestine work. They do that, but a very small percentage. It's very frustrating for people like the FBI who are looking for the classical intelligence man. They found one in Larry Wu-Tai Chin in 1985. We got that through a penetration in the Ministry of State Security, Yu Qiangsheng.

That broke the case. But that case showed us their techniques, and their techniques were quite different. This man was never handled in the country, never saw the embassy. He always went to third countries, Canada or Hong Kong, and did his work there. ...

Through the years, we've picked up on their training techniques. We've got a number of defectors from embassy intelligence people who have told us the way they train, the way they recruit, the way they motivate, the way they dispatch undercover -- either unofficial or official cover -- for a third country, targeting certain areas, with a very heavy emphasis in the United States on technology.

Is it your sense that the FBI, from the mid-1950s, the 1960s, 1970s, 1980s, on up to today, has ever really understood and been able to A) make the distinction between Chinese espionage and Soviet espionage, and B) [been] able to put any priority or emphasis on Chinese counterintelligence?

I think the FBI has tried very hard, and I think they've got a number of informants. We've shared the information from the agency with the FBI on the defectors we got, which was really their breakthrough. I think the FBI drew certain conclusions about the Chinese that were probably not quite accurate, [believing] that they did not conduct clandestine operations; and they do. They just didn't find them.

They got very frustrated when they ran into a case, and the big cases on the West Coast, like Peter Lee ... where they had a man passing ... information, in Peter Lee's case, right to the Chinese. ...

Peter Lee's case was they had this guy giving this very sensitive data to the Chinese on underwater detection of submarines. They ran into this case where the Navy wouldn't allow a court case against him because of the data. So they had a bargain plea, and he got off, basically. For stealing very high-level stuff, he gets probably, what, a couple of months in a halfway house. The stakes are not very high for these guys to get involved in espionage. ...

What complicates the whole thing for somebody looking for the spy is the United Front Department of the party, which carries out what we could call covert action. That's their job. They're an arm of the party. They work subversively. They worked all over Africa, Latin America. They got caught and kicked out of all sorts of countries in Africa, working with subversive elements against the government, left-wing parties. But this was the United Front Department of the party carrying out the mission of communism. I think that has shrunk quite a bit.

But it wasn't until 1983 that you broke away from the party, when you established the Ministry of State Security as a governmental organization. Then they took the intelligence function largely away from the party and put it into the MSS. But the MSS works with all kinds of military groups, like the Science and Technology National Defense Committee. They work very closely with them, because they're both trying to get technology. That is one of the major acquisitions in the United States, using undercover methods.

How important, ambassador, was the Larry Wu-Tai Chin case, the success of catching him? What did it tell us about how we would wage this war with China?

My own sense is Larry Wu-Tai Chin probably didn't have access to very good information. He was a translator for FBIS. He was recruited in 1944, in China, and he worked for them for 35 years. This was very frustrating -- that this man was able to work that long with the Chinese, making his contacts outside of the country, having a coding system through open letters to a dead drop, to a letter drop, and then triggering a meeting, let's say, in Canada or in Hong Kong.

I know that some people feel he had access to agent material, could identify agents, and knew secret things and Kissinger. I tend to feel that's probably not true. Kissinger did not play that way. He would never let a person have access to what he was doing; [he] wouldn't do that. I think Larry Wu-Tai Chin had information. But I don't think it was crucial [information].

So when people say this guy was an unbelievable spy for 40 years -- he prolonged the Korean War, prolonged the Vietnam War, cost thousands of lives, and even hinted to the Chinese and gave them information about what our strategy was for normalization in 1971 and 1972 -- you're not buying it?

I certainly am not. I'd have to be convinced that he gave the Chinese information on normalization [along with] Kissinger's [plans]. He didn't know.

So why would FBI guys be telling me this?

Oh, I don't know. I suppose there is a certain amount of dramatic flair, and they may know more than I do. I didn't read the whole file. I was in the State Department when they caught him. The Chinese, of course, disavowed that he had anything to do with them. But that he prolonged the Vietnam War, this man? I find that very hard to believe, very hard to believe.

You mean it may be that what they are doing is gilding the lily. Let me take you back in context just for a moment. [The FBI's counterintelligence unit] hadn't had a significant arrest. It's 1985. It's the year of the spy. Pollard has happened. Miller has happened. And they haven't had [an arrest]. Suddenly, within a week, they have one, Larry Wu-Tai Chin. Suddenly, for a few years, the sun is shining on the Chinese counterintelligence unit at the FBI. Is it possible that what they were doing was making much ado about nothing?

No, I wouldn't say that. I would say that, if you look at the Katrina Leung case out in California, that the idea that she was giving information that was critical to the Chinese government because she was feeding stuff to the United States about what was happening in China, and that she was influencing U.S. government policy by what she reported, I don't think that's true. I mean, the intelligence business doesn't rely on this kind of a creature to tell you what's happening in the world, nor do they rely on somebody like Larry Wu-Tai Chin. So the idea that these people can influence American policy and prolong the Vietnam War, it seems to me to be a stretch.

But there is a difference in concept, at least I've found, between, let's say, what the military and what the FBI might do with an agent and what the CIA does. I think one of the differences is that the CIA spends a great deal more time on authentication and process. The military and the FBI tend to collect whole bunches of information and flip it back to the research people in Washington to figure it out, with not as much authentication done. We found this in Vietnam. We found it in Laos. We found it in many places where I worked, on the Chinese side particularly.

One of the things that it got the CIA to be very careful about this was the CIA was very badly burned by monstrous Chinese fabrications in the 1950s, when these people would walk in and say, "I've got a huge stay-behind network in China. Here's the reports coming in from Hunan and from Shanxi and there's this stuff." We'd give them $100,000, and you'd get all the information. You didn't have to work. It turns out, the guy was doing it out of provincial newspapers in a room in Calhoun, writing it up; they'd check it against the newspapers, it checked out, and he got paid a lot of money. But eventually, they cracked him, using various techniques including a polygraph. They found out about this.

So there was a tremendous emphasis in the CIA on authentication. How do you authenticate the agent? But sometimes the information wasn't so hot. But somebody from the military side or other side could come in with really hot stuff, internal dissention at the top levels of the Communist Party, military people challenging civilian people for controls of the budget, this sort of thing. Holy smokes. Yes, but this person is Chinese. She goes to China. She sees [someone high up] and his brother or his son, or something like this. She has access. She's given us this stuff. I think it's a difference. It's take on one side, it's process on the other.

I'm an FBI agent. I gather, I filter, I send back to my analysts in Washington. What are the implications of that?

Production. Produce. [There's] a lot of pressure on military officers, [intelligence] officers, for volume intelligence, numbers. [They] don't worry about the authentication process. "We'll do that back at home." Well, the people back home don't do it. They get a tremendous flood of information. They can't really sort it out.

This can lead to good coverage. I've seen the military attachs people do one very good job of, let's say, observation intelligence, or sometimes [they] are listening. They can do that. Good minds, good memories, a good sense of what's important militarily. Catching a license plate number, something like this, and then reporting it back. Worthwhile.

I was there at Tiananmen and saw them really cover the town very well, roadblocks, the troops coming in through [Yunnan] Air Field to the south, getting a whole sense of what was happening. Was there really a civil war coming? The answer was no, there isn't. It was being reported in the media. But we went out and we talked to the troops coming in, and found out through good attach work that this was not true. I think this sort of thing is better.

But when you get into the highest levels, you've got to have a greater degree of authentication. If you, for instance, go back to the CIA operations in Moscow, they were able to intercept the conversations between limousines and Politburo members in Moscow, for a while, until it blew. That is authentic data, probably 90 percent. Of course, the Russians could be onto it, and fool you. ...

When you step back and you look at the Leung case, if you look at Larry Chin, if you look at Peter Lee, you look at Wen Ho Lee, and you look at Gwo-Bao Min, what picture emerges for you of how we are handling the Chinese espionage -- at least how the FBI is handling Chinese espionage domestically?

I think it is so massive that it's very hard for us to track with limited personnel, and perhaps some limited professionalism. I mean, if you look at, for instance, the number of Customs cases that Nick Eftimiades points out in his book, 800 cases in Customs [violations]. Half of these are Chinese; 400 are Chinese. How do you track this down? Very hard.

But we've been able to crack, I'd say, 10 cases; night vision equipment, F-14 blueprints, infrared camera kind of stuff that these guys are getting out to China. They were caught. They were nailed. They were tried, some of them convicted. But that's a very tortuous, long process to nail one of these guys. Think of the tremendous amount of work that went into the Wen Ho Lee case, and then failing.

The Leung case is just a travesty of what an operation is supposed to be all about. There was no real authentication there.

What do you see wrong with that case?

I would say contamination of the sexual factor, which clouded objective vision. I would say the willingness to grab what sounded like good information, and pump it up the line, and say, "We've done what other people can't do." Competitive collection. A number of things get into this thing.

My sense is that the CIA broke away from this earlier than some of the others. We tended to rely on the networks The networks would come in. You'd get a villager guy up in northern Thailand or Vietnam, and you'd try to get a network set up to pick up information on the Vietcong, and that kind of thing. It didn't work very well at all; didn't work very well because these guys don't care about the truth. They don't care about it. It's not part of their makeup. They're fast-buck artists. They're making their money on the margins. They're living hand to mouth, and some big Westerner comes along, and says, "I want information on the village." "OK, he wants it; give it to him. If he wants a blue suit, turn on the blue light. Give him what he wants."

We got suckered in on this thing quite often. I saw this happen in Hong Kong as late as 1968, 1970, using these people to collect network information from China. We knew it was false. But they wouldn't listen.

I think that the other thing that we sensed was, in certain areas, the Chinese were pretty effective in penetration exercises, particularly against Taiwan intelligence. They had that penetrated. They knew all the agents that Taiwan was sending into China. They doubled them all or killed them, got rid of them. This was in the 1960s when Taiwan was weak. Now that's changed. Taiwan is probably on the offensive in some ways.

In those days, the Chinese had run some fairly sophisticated operations right into the Taiwan intelligence apparatus. They had a very, very extensive network through the Public Security Bureau in Hong Kong, informants all through the city. I imagine they still have.

They are professional in defending their own interests by countering hostile intelligence. They see us in the mirror image of themselves, a huge collection effort using people, under persuasion, sometimes family connections, sometimes patriotism, sometimes financial inducement -- a mix of things that get people to cooperate, but not to the point of espionage, getting that paper to us. "You do it for the mother country. OK, so that paper is supposed to be classified. You won't hurt anybody. We'll wait [for it] Besides, the Americans are arrogant and difficult, and discriminate against you."...

What do you make of the Wen Ho Lee case? What happened?

It's hard to say. People I know that have known him personally have said that he had a rather unpleasant attitude towards the U.S. government. It's hard to reconstruct the case. It's inexplicable what he did with those files, to unload this top-secret testing data on nuclear weapons, and put it into an unclassified form.

You get all the arguments that, well, this stuff was eventually declassified, and everybody did it, and why worry about it, and you are harassing him, and he was trying to protect his job, and this sort of thing. My sense is the one thing they were never able to do was to connect him to the Chinese. Yes, they got him on a few trips over there that he didn't report, that he wasn't accurate on. They could never make the espionage connection.

Should he have been prosecuted? I mean, it's one thing to fire a guy like this.

Yes. Prosecuted, but they couldn't make their case. They could make the case that he was derelict in handling classified data, which is what they eventually got him on, one of 59 counts. But they never got him on the big counts, because he was protected. Any good intelligence service knows that you've got to have a break between the collecting agent and the case officer. When that collecting agent gets into trouble, the break goes up, and this disappears. I think people were alerted that this was coming, and this guy disappears. You don't see it anymore. But this is not based on a factual study of the case. I just saw what I saw in the newspapers.

[Do you think] that pressure caused prosecuting attorneys and the FBI to rush to judgment?

All I can say is, it's no way to handle a counterintelligence case. You can't handle it that way. You've got to set in motion a whole series of measures against the suspect before he knows you're onto him. You've got to read his mail. You've got to tap his phone. You've got to put a bug in his house. You've got to get informants working on him. Then you can entrap him. They didn't do that.


I guess they couldn't get permission to telephone tap him. I don't think they had the informants working against him very effectively. I don't think they had a bug in his house, for the same reasons. They just didn't get onto it quickly enough. When they did, it seems to me when they go onto it, then he was aware. Whatever happens, you take defensive action.

It seems like a lot of these cases, in order for them to succeed, basically what it boils down to, given the way the Chinese do it, here are no dead drops. There are no other places that you can find a piece of paper and, as you say, a control agent, that it all kind of hinges on that informational interview, the moment where you confront the suspect, and hope you'll tip him over. I mean, in a way, that's what they did to Larry Wu-Tai Chin -- they talked him into it.

We had the goods on Larry Wu-Tai Chin. We had his Ministry of State Security guy who wasn't defected in place. The real cases come there. I mean, the case we had in Southeast Asia in the late 1950s was a defection in place, who could tell you for quite a long time what their techniques were, how they handle it. There was a lot of clandestinity in it. It wasn't just putting their arm around somebody and saying, "You're working for the motherland." ...

I don't think anybody is trying to make any aspersions on the American-Chinese community. Many of them are very loyal, decent people, perhaps most of them are. But there was a contingency that really went after these guys, and protected them, with money, lawyers, motions, articles.

Really, a counterintelligence group has to be very selective, very clandestine, very professional about how they get at these cases. They have to be able to sort out who's the United Front man, who's the man just being used casually to get a piece of the technology, who is the real guy that is the point man, the Ministry of State Security officer under deep cover. This has to be sorted out. It's a difficult thing, especially if you have to get these people through a legal process that is rather cumbersome.

Tell me about their nuclear program. What was the state of it? How far behind us were they? What kind of a hurry were they in to catch up, and what were they prepared to do to get there?

Well, that was not a high priority for the embassy. The [CIA] station worked on it. They had some operations that were aimed in that direction.

In the period I was there, 1989 to 1991, they were really basically in a retrenchment period. They had taken a very hard hit on Tiananmen. Their military was very defensive and very upset about what had happened.

What they did, they moved aggressively all the way through, setting up companies in the United States in wiring technology, trying to buy out companies ... and then getting new technology. But they were getting an awful lot through open sources. The attempts to get at the nuclear weapons program did not take place in -- well, at our program. …

My sense is that their acquisition of technology on nuclear weapons has been a steady process. It's continued for years. They used a variety of means to get it. Sometimes, as they say, the W88, the miniaturized warhead, people swear that they got it from us. Again, you get into the proof factor. You get the fact that this had appeared in certain publications. You get the fact that the guy who gave us the information was suspect. You got into all these questions, and I had not seen this actually resolved.

But what I was told is that people who made an examination of the W88, and what the Chinese were doing, the parallels were absolutely striking, that they must have had access to some kind of data that helped them in their program. ...

There's a slight controversy -- maybe a little more than that -- about the notion of whether these lab-to-lab visits are the right thing to do, whether we should allow or disallow them. What's your reading on the effectiveness of those?

I think that, basically, you've got to let an awful lot of this go. If you get into the process of trying to check this, you're going to be really overwhelmed. If you go to Silicon Valley, if you go to the University of Maryland, or Boston, the suburbs of Boston, the high-tech areas in the United States, it's just in touch with China all the time.

If you go to Silicon Valley, the highest semiconductor design outfits, hundreds of them [employ] Chinese. These guys are going to China two or three times a month, and they go to Taiwan, then come here. They're doing a whole series of activities and producing efficiently. [They] produce the wafers in China, do the design in Silicon Valley, get the capital from Taiwan. This the way the world runs. I don't think American government can get in the middle of that one.

What you have to do is to know what technologies that the Chinese need and don't have, and if they get [them, it] is against your interest. Then you've got to specify these things and stop them from getting them. But you can't run around after all the people in touch with each other. I think these lab exchanges of scientists, by and large, probably work to the Chinese benefit within a marginal way.

Only "in a marginal way." They're getting more than we're getting?

Oh, yes, they're getting much more. I think they're getting more because they are so relentless in pursuing it. They do pursue these people when they come over there very intensely. We don't seem to pay a hell of a lot of attention to it. They have the manpower and personnel to do the cultivations, the approaches, the translations, and they do it, whereas we tend to be a little more cavalier about it. We try to focus on sharp cases. You can't really track down all of the exchanges of all these Chinese coming into Los Alamos. They're using your library, and they're stealing all your secrets. I'd have to be shown that that was actually damaging to us.

So, much ado about nothing?

That's probably overstating it. I think there's probably something there, that they are getting stuff that probably shouldn't. But I don't think it really changes the balance of power very much. ...

I talked to a fellow this morning who said the failure in Wen Ho Lee, the failure in Peter Lee, the failure in Gwo Bau Min, the inevitable failure and kind of messiness of the Leung case -- the effect of it all is to kind of salt the field so that the crop of counterintelligence, the crop of bright, innovative ideas for holding the Chinese at bay will not yield the fruit -- if I'm not mixing my metaphors -- necessary to face America's inevitable enemy in the year 2050. We will not be prepared. We cannot be prepared. It has all been sullied in some important and significant way by these events. What do you say in response to that?

I think that's a rather stark scenario. China is not going to be our inevitable enemy in 2050. It can be our partner. I mean, I don't buy this business of them being an enemy in the future. They're going to be a powerful nation. They could be. They also could be a split nation, [with] very, very serious problems. I think they're struggling with this right now. I mean the domestic concerns are number one on their list of things to do.

The number one priority is their domestic economic instability. Sure, they've got very high foreign exchange reserves. They've got big exports. They're expanding at 9 percent. All these things look good. Visit [the] Hunan countryside; spend a little time in western China. It's very, very different. It's very backward and very, very poor. You have a country torn by these great disparities of wealth. It's with the leadership, Hu Jintao, Wen Jiabao. People like that spend an awful lot time trying to take care of this very dangerous problem, because it's all laced with corruption.

I think that China is going to try to move ahead. What disturbs you is their acquisitions from Russia are pretty formidable, some of them, and their dissembling on the their military budget. That's a little bit disturbing. But I think you're making some progress with them. We know an awful lot about the way China works, the way we worked on, let's say, joint operations against the Soviet Union, which were quite successful, Afghanistan, northwest China. We work with them very closely. We talk with their people all the time.

So what our FBI guys and our others who advocate strong Chinese counterintelligence from the FBI [are doing is] overstating their problems--

It'd be hard to say. But what you need to get with the Chinese is the high-level penetration. That pays off. That pays off when you have access. When you have access, you'll get the guy that wants to compromise, and change sides, and that sort of thing.

How do you get that access?

We have it all the time. We deal with them all the time -- not as much as we used to -- but we had a number of areas where worked very closely with their military intelligence people, with their Ministry of State Security in other areas. We worked very closely with them.

We do today on a number of things -- drugs. We just cracked a big drug case, working very closely with them. We have a good sense of the way they operate the provinces, how they recruit, how they train, how they motivate, how they handle people. [We deal] with that chain. You pick him up, recruit him, play him back. He rises up in the system.

If you look at the way the Russians managed the Kim Philby, Burgess and Maclean cases in the 1930s in England, when we recruited these guys at a certain point, insert them into the system -- it would pay off maybe five to 10 years later. I think that in the China thing, you've got to do the same thing. You've got access to them. You see them all the time. You run into them. You have access agents in touch with them. You build up your portfolio, your dossier, and then you take action on them. ...

[There's] never a good time to do anything about China. They say, "Please don't arrest." They say a lot of guys say, "Don't arrest anyone because our relations are good with China." Or "Please don't arrest anybody, because our relations are bad with China." They love to say, "It's the State Department that's the problem." What's [your] response?

I think the relationship has now matured to the point where we can accept that sort of thing. I think the handwringing over the wrong timing has very often been an excuse. They would not hesitate for a minute to do it to us. They arrested a couple of our people right in the middle of an [agent] meeting down in Southeast Asia, and [we] didn't stop it. It made us look weak. We were impotent.

Who's wringing their hands in that scenario?

I think you always have got these academics, and China experts, and some bureaucrats who always don't really understand these things, and get emotionally involved. These things look like big nasty moves by an arrogant America that is pushing people around, and they take the side of the other guy. That sort of is washing away a bit now.

John Tasik wrote a very good piece on this in the Asian Wall Street Journal, pointing out that maybe that day is slipping where you can't do it now, because the relations are good. You can't do it now, because the relations are bad. You can't kick this guy out, because they will retaliate. No, no. You catch, you kick him out.

That's the new day.

I think it's coming. And I think this is a case in point. ...


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posted january 15, 2004

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